Negotiating an offer is arguably the key step in the sales process. It can be the difference between a lucrative offer and an unfair one. To help you assist your board with this stage, we have listed 5 pieces of important advice to consider.
1. Agree key terms upfront
When negotiating with a potential investor/buyer, it is important to agree key terms upfront. “Heads of terms” provide you with an opportunity to agree to these and set an early precedent for future negotiations. If the board is not happy with the terms at this stage, a better option may be to just walk away and save everyone both time and money. The moment a potential investor/buyer is given the upper hand is the moment a board can jeopardise the chances of maximising sale value.
2. Understand the purchaser’s motives
Different investors/buyers will have different motives behind their involvement in a process. Understanding these from the outset can be critical for effective negotiations. The investor/buyer will undoubtedly change from a best friend during initial discussions to taking a much harder stance during contract and price negotiations. It is important to remain calm but firm during negotiations and not be overly emotional or aggressive, which can be perceived as a weakness by a potential investor/buyer. By staying in control, the board is much more likely to get what they want from the negotiations.
3. Be calm but firm
During negotiations, it may become clear that the chemistry between a board and the potential investor/buyer is not a good fit. This could be an early warning sign to end the process, especially where it is a trade investor and the CEO/board member is likely to stay with the business as part of an exit plan going forwards. To run a successful business, it is critical that everyone’s interests are aligned. The direction and culture of the business may change considerably once under new ownership; thus, the existing management team need to be comfortable with them from the outset.
4. Protect yourself
Warranties and insurance allow a seller to mitigate certain risks that they could be exposed to from terms inserted by an investor/buyer in the heads of terms and eventual sale and purchase agreement. Both understanding and negotiating these is critical and often requires expert advice from an experienced advisor. A deal may sound great at first glance, but there could be terms which make it fundamentally unattractive. The board should be advised from the outset to take these into consideration.
5. Don’t lose sleep over less important issues
There are always issues that arise during negotiations with the investor/buyer that cannot be easily resolved. The materiality of each issue should be assessed in the context of the entire process. If proven to be immaterial, they should not be laboured over. There is little point losing sleep over issues that will make no difference to the eventual sale proceeds. With this in mind, your advice to the board should be to pick battles carefully and focus only on the more important issues at hand.